Address to ANZ India Viewpoint Launch and Business Forum

Thank you very much for the opportunity to speak today at the launch of the ANZ India New Zealand Business Forum’s India Viewpoint. I want to commend ANZ for this initiative and the advice to business that it has compiled about how to succeed in India.Hon Tim Groser Minister of Trade

27 July 2012

Address to ANZ India Viewpoint Launch and Business Forum

Thank you very much for the opportunity to speak today at the launch of the ANZ India New Zealand Business Forum’s India Viewpoint.

I want to commend ANZ for this initiative and the advice to business that it has compiled about how to succeed in India.

The publication echoes advice for a range of big emerging economies with which New Zealand businesses are increasingly engaging, for example China, or Indonesia, or Brazil.

India is now typically New Zealand’s 7th or 8th export market, depending on the month being measured. The fact we are talking about how to succeed in India illustrates the rapid changes underway in the global economy and trading environment. I want to step back and put the India/New Zealand trading relationship into that wider context.

One driver is a fundamental rebalancing that is underway in the distribution of global economic weight. The respected OECD economist Angus Maddison estimated that in 1700 the biggest economy in the world was India, at 24% of global Gross Domestic Product, followed closely by China (22%) and the Western Europe as a whole (22%). That had been the case – more or less – for centuries.

The industrial revolution in Europe, and some also say British colonialism, knocked that trajectory off course. Rapidly, Europe expanded to comprise an estimated 33% of the global economy by 1870, with the United States at 9%; India fell as low as an estimated 12% of world GDP by that date. In a sense therefore, we are living today through a massive ‘market correction’ as the historically biggest economies in the world, such as India, reassert their long-run importance.

The global economic crisis, triggered in 2008, has accelerated this shift, and made it more obvious, but it was already well underway in the early years of this century. Clearly we cannot expect this readjustment to be automatic. There has been much publicity recently about the slowdown in the Indian economy.

The expansion of Gross Domestic Product slowed in 2011/12 to 6.9%, down from 9.6% the preceding year, reflecting external and internal factors. The budget deficit increased to 5.9% of GDP, primarily due to high subsidies.

Prime Minister Singh has recently taken over the Finance portfolio and promised to advance economic reforms that could restore business and investor confidence. Nonetheless, we need to keep in mind that the strong fundamentals of the Indian economy – rapid labour force and education expansion, high savings and investment rates – mean that the Indian economy will continue to grow. The issue is more around how fast, and how best India can manage that transition.

A related factor of course is ‘globalisation’. This is not a new phenomenon, but has always been important for New Zealand’s economic development. The famous example of export of refrigerated sheep meat from New Zealand to Europe in the 19th Century was actually a case of globalisation at work. A very apparent feature of the latest phase of globalisation is that major markets, in the Pacific Rim, East Asia and India, are coming much ‘closer’ to New Zealand than was the case when we had to export our product to the United Kingdom.

New Zealand is well positioned to benefit in this newly Pacific-centric global economy, provided we work hard to take full advantage of the opportunities. For the first time in our history, we are in the right place at the right time. The Asia-Pacific region is predicted to be the most economically dynamic this century and the trade policy architecture for the region is evolving rapidly, including through a web that spans the Pacific. New Zealand is plugged into and active in these processes. The bilateral Free Trade Agreement (FTA) negotiations between New Zealand and India should be seen in this context.

We already have put in place a number of key building blocks: the Closer Economic Relations (CER) Agreement with Australia, dating from 1983, the Free Trade Agreement with China, the Association of South East Asian Nations or ASEAN-Australia-New Zealand FTA, known for obvious reasons by those in the trade policy business as AANZFTA, and a range of bilateral agreements that we either have already concluded or are in the midst of negotiating with other economies around the Pacific rim.

In particular, New Zealand has continued to play an active role in advancing the Trans Pacific Partnership (TPP) negotiations in 2012 This massive FTA project embraces countries whose economies total US $ 15.893 trillion. In June I announced on behalf of all nine current TPP participants that Canada and Mexico would join the negotiations – adding another US $ 2.445 trillion to the enterprise – and had confirmed their commitment to the shared goal of a comprehensive, high-ambition, next generation agreement, consistent with the statements made by TPP Leaders and Trade Ministers in Honolulu in November last year.

Similarly, New Zealand is actively participating in an initiative that the countries of ASEAN launched in April to build on their existing FTAs, such as AANZFTA, to develop a Regional Comprehensive Economic Partnership (RCEP). The idea is for this RCEP to cover Australia and New Zealand, China, Korea, Japan, and India in a single agreement that will be of higher quality than the existing FTAs that ASEAN has with each of these countries. Obviously this proposal raises big questions for ASEAN’s existing partners about the trade policy architecture and future economic development for the region.

I know this might sound esoteric, but it has intimate links to the real world. The architecture of regional trade arrangements in the Asia-Pacific, and details such as Rules of Origin, are particularly relevant to business because of the growing importance of Global Value Chains. Our trade with India already contains some good examples of such value chains.

For example, wool (NZ$ 44.8 million) is a fairly constant feature of our exports to India. Most of this is strong grade wool used in India’s carpet industry.

Processed and unprocessed leather has traditionally been important in our exports to India and go into production of garments, particularly for the European market, though this has fallen recently due to the economic situation in Europe.

Coming the other way, major Indian technology companies are increasingly looking to New Zealand as a “near shoring” opportunity. They are keen to partner with New Zealand companies and use this country as a base to enter the Asia-Pacific region, taking advantage of our network of high quality, comprehensive FTAs with countries in the region.

This last example illustrates how an FTA between India and New Zealand would provide another entry point for India, and Indian businesses, into the dynamic Asia-Pacific region. It would support India’s ‘Look East’ policy. India already has FTAs with ASEAN, Japan and Korea. But an FTA with New Zealand would provide India a linkage to some significant additional groupings. We are part of a wider set of negotiations – the Trans Pacific Partnership – that spans the Pacific Rim. In addition, we have an FTA with China – which India does not.

I suggest that Indian policy makers – including Prime Minister Singh with his Finance portfolio – may also want to consider making use of the FTA with New Zealand as an opportunity to complement their own domestic economic reform programme. This is what New Zealand did with Australia when we negotiated CER. A key part of the political calculus at the time was that New Zealand had an inefficient sector (manufacturing) that needed to be exposed to external competition, in order to start the process of reform, but in a manageable way. CER allowed that. Similarly, I would argue that New Zealand offers India an opportunity to open up its agriculture sector to a limited, manageable level of competition from a relatively small New Zealand industry. Such trade with New Zealand also provide inputs into key sectors of growing economic importance – such as hotels and restaurants.

Moreover, the experience of New Zealand companies is that investment tends to follow trade, meaning that once a secure trading relationship has been established through a comprehensive, high quality FTA, New Zealand industry is more likely to invest, share technology and thus contribute to ensuring India’s food security in future.

New Zealand also offers India a worthwhile market. When I launched the FTA negotiations with India’s then-Minister of Trade, Kamal Nath, in 2009 we both saw the potential in each other’s markets. The joint Ministerial statement noted “…considerable potential to substantially develop bilateral trade and economic relations… would be significantly enhanced by the FTA”. That potential is even more apparent today.

For example, three years after the start of the China FTA we now import from China NZ $ 6.9 billion worth of goods, almost twenty times what we buy from India. According to media reports India’s Ministry of Commerce has been directed to double the country’s exports, to US $ 500 billion, by 2013/14. In that context New Zealand offers India a material opportunity.

That New Zealand is open for business was demonstrated again recently by the finalisation of biosecurity processes to allow access for Indian mangoes to New Zealand. While I look forward to being able to eat India’s superb mangoes soon, I regret that Indian consumers still do not have a comparable opportunity to eat New Zealand sheep meat. India maintains sanitary barriers against import of sheep meat from New Zealand, which we do not consider scientifically justified. Our officials continue to talk actively with their Indian counterparts on this.

The New Zealand government’s vision for our relations with India is encapsulated in the NZ Inc India Strategy. This envisages India as a core trade, economic and political partner for New Zealand by 2015. We aim to increase merchandise exports to NZ$2 billion by 2015; grow services trade (education, tourism and sale of professional services) by 20% per annum; improve bilateral investment; attract and retain skilled migrants; engage more deeply with India on regional and global issues and raise New Zealand’s profile in India.

The FTA negotiations are an important component of this strategy. At present a limited range of commodities still make up the bulk of our exports to India: coal; logs; wool; some fruit (notably apples) and some dairy products.

Our export profile to India is quite unlike that to any other major economy. This reflects the high tariffs and other market access barriers that India maintains. Our goal for a successful conclusion of the FTA is to remove these barriers so that the complementary character of the two economies can be realised.

The last round of negotiations (in New Delhi, 27-29 June) saw useful progress in some areas, and agreement to an intense series of so called intersessional contacts on specific topics. Both sides had a first chance to question each other about their respective offers on services and ‘Movement of Natural Persons’, which had been tabled in February. But we continue to wait to be able to complete the exchange of revised goods offers with India that was initially scheduled for March. That will be necessary to enable the overall process to advance.

Meantime, the government will maintain its focus on the NZ Inc Strategy’s key target sectors for lifting exports to India:

The ANZ Vision document is highly relevant to this. To succeed, New Zealand firms must invest for the long term, based on thorough research. In the main, a “drop in” sales and marketing approach will not work. Building relationships remains critical. Indian business people need a proven commitment to their market. New Zealand government agencies – principally New Zealand Trade and Enterprise, the High Commission, and Education New Zealand – are ready to work with New Zealand businesses that are prepared to develop a robust market in India.